Labor Force Statistics

1
Labor Force Statistics

• An employed person is a person over age 16 who

Is not in the military, in prison, or in some
other institution
AND
Worked at least one hour in the past week as a
paid employee OR Worked at least one hour in the
past week for his/her own farm or
business OR Worked at least 15 hours as an unpaid
employee of a family business OR Did not work in
the previous week but had a job from which he was
absent due to vacation, illness, bad weather,
childcare problems, family leave,
labor-management dispute, job training, or other
family or personal reasons
2
Labor Force Statistics

• An unemployed person is a person over age 16 who

Was not employed during the past week
AND
Was available to work during the past week OR Was
temporarily ill but would otherwise have been
available to work
AND
Made specific efforts to find employment sometime
in the past 4 weeks OR Was waiting to be recalled
from a job from which he/she had been laid off
3
Labor Force Statistics

• More definitions
• Employment is equal to the number of employed
  persons.
• Unemployment is equal to the number of unemployed
  persons.
• The labor force is equal to the number of persons
  who are either employed or unemployed
• The unemployment rate is equal to employment
  divided by the labor force

Labor force employment unemployment
Unemployment Rate Unemployment x 100
Unemployment Rate Labor Force x 100
Unemployment x 100
Employment Unemployment x 100
4
Labor Force Statistics

• More definitions
• A person who is not in the labor force (NILF) is
  a person over age 16 who is not in the military,
  not in prison or some other institution, and who
  is neither employed nor unemployed
• Ex retired individuals, disabled individuals are
  NILF
• A discouraged worker is a person who is NILF but
  wants a job, is available for a job, and has
  either worked or looked for work in the past 12
  months, but is no longer looking for work because
  he/she believes that there are no jobs available
  for him or her
• The civilian noninstitutional population (CNP16)
  is equal to the number of persons over age 16 who
  are not in the military, in prison, or in some
  other institution

Civilian noninstitutional population labor
force persons NILF
5
Labor Force Statistics

• More definitions
• The labor force participation rate is the labor
  force divided by the civilian noninstitutional
  population
• All of the above definitions are technical terms
  set by the Bureau of Labor Statistics (BLS) of
  the U.S. Department of Labor
• Values of the above variables can be found at
  http//www.bls.gov

Labor force participation rate Labor force x 100
Labor force participation rate Civilian noninstitutional population x 100
Labor force x 100
Labor force persons NILF x 100
6
Unemployment Rate, 1947-2001
Source Bureau of Labor Statistics
7
LF Participation Rate, 1947-2001
Source Bureau of Labor Statistics
8
Labor Force Statistics

• Estimating labor force statistics
• The Current Population Survey (CPS) is a survey
  conducted by the BLS and by the Bureau of the
  Census
• Calls or visits 50,000 households each month,
  interviews 140,000 individuals a month as a
  result
• Labor force questions are asked of as many
  individuals in the survey over the age of 16 as
  possible
• The responses of the approx. 110,000 individuals
  over age 16 surveyed are used by the BLS to
  estimate the unemployment rate, labor force
  participation rate, etc. of all 270,000,000
  Americans
• Unemployment rate believed to be correct within
  0.2
• CPS data available to public at
  http//ferret.bls.census.gov

9
Kinds of Unemployment

• Reasons for unemployment
• Frictional unemployment is the number of people
  who are unemployed not because they cannot find
  any job at all, but rather because they are
  passing up available jobs because they believe a
  longer job search will result in their finding a
  better job later on
• Sometimes called search unemployment
• Exists because of imperfect information in labor
  markets, ideal matching of job seekers with job
  vacancies is not instantaneous
• The frictionally unemployed are voluntarily
  unemployed, believe that a lengthier period of
  unemployment will make them better off in the
  long run because it allows lengthier job search
• Considered a healthy kind of unemployment for
  an economy

10
Kinds of Unemployment

• Reasons for unemployment
• Structural unemployment is the number of people
  who are unemployed because of changes in the
  structure of the economy
• Ex. If industries shift their operations from
  the North to the South, jobs decrease in the
  North, unemployment increases in the North
  regional imbalance in labor markets
• Ex. If technology improves and production shifts
  from a low-technology, low-skill environment to a
  high-technology, high-skill environment,
  unemployment increases among low-skill workers
  occupational imbalance in labor markets
• Also considered a healthy kind of unemployment
  because it is a side effect of often positive
  changes in the economy

11
Kinds of Unemployment

• Reasons for unemployment
• Cyclical unemployment is the no. of people who
  are unemployed for reasons other than frictional
  or structural unemployment
• Cyclical Unemp. Total Unemp. Frictional and
  Structural Unemp.
• Often attributed to a failure of aggregate
  product demand people, firms and the government
  are not buying goods and services, firms do not
  need workers to produce goods and services and do
  not offer jobs to all willing and available job
  applicants
• Sometimes called demand-deficit unemployment
• Not considered healthy for an economy the
  cyclically unemployed are people willing and able
  to work who are idle for no reason that benefits
  either the unemployed person or the economy as a
  whole

12
Kinds of Unemployment

• The natural rate of unemployment
• The natural rate of unemployment is the
  unemployment rate that would prevail if all
  unemployment was frictional or structural
• Cannot be measured precisely but educated guesses
  can be made
• Was approximately 4 during the 1950s and
  1960s, 6 during the 1970s and 1980s, and back
  to 4 for the 1990s and 2000s
• Long-term changes in the unemployment rate are
  attributable to changes in frictional and
  structural unemployment, and consequently to
  changes in the natural rate of unemployment
• Short-term changes in the unemployment rate are
  attributable to changes in cyclical unemployment
  natural rate of unemployment stays the same
  through short-term changes in unemployment rate

13
Kinds of Unemployment

• The natural rate of unemployment
• Ex. Increase in average yearly unemployment rate
  from 4.8 over 1960-69 to 6.2 over 1970-79
  likely due to change in frictional and structural
  unemployment natural rate of unemployment likely
  lower in 1960-69 (approx. 4) than in 1970-79
  (approx. 5.5)
• Note natural rate of unemployment in a decade not
  the same as average rate of unemployment in a
  decade
• Ex. Increase in unemployment rate from 5.6 in
  1974 to 8.5 in 1975 likely due to change in
  cyclical unemployment natural rate of
  unemployment likely same in 1974 as in 1975
  (approx. 5.5)
• When cyclical unemployment rises for more than ½
  year, some say economy is in recession rest of
  time, economy is in expansion

14
Unemployment Rate, 1947-2001

• Trend change in unemployment (red line) change
  in frictional and structural unemployment
• Fluctuations around that trend change in
  cyclical unemployment
• When deviation from trend is great, so is
  cyclical unemp.

Source Bureau of Labor Statistics
15
Unemployment Rate, 1947-2001

• Ex. In 1982, unemployment much greater than
  trend, cyclical unemployment great
• Ex. In 1988, unemployment much less than trend,
  cyclical unemployment slight

1982
1988
Source Bureau of Labor Statistics
16
Kinds of Unemployment

• Controlling cyclical unemployment
• Cyclical unemployment can be reduced with
  expansionary fiscal policy (increasing government
  spending or cutting taxes) or expansionary
  monetary policy (reducing interest rates by
  manipulating the money supply) see any macro
  text for details
• Cost of reducing cyclical unemployment with
  expansionary fiscal or monetary policy is higher
  inflation rate
• Expansionary fiscal or monetary policy pursued if
  enjoying lower unemployment rate is worth
  tolerating higher inflation rate
• Expansionary fiscal or monetary policy wisest
  when unemployment is unusually high (gt7) and
  inflation is low (lt3)

17
Kinds of Unemployment

• Controlling cyclical unemployment
• Cyclical unemployment is usually increased by
  contractionary fiscal policy (reducing government
  spending or increasing taxes) or contractionary
  monetary policy (increasing interest rates by
  manipulating the money supply) see any macro
  text for details
• Value of increasing cyclical unemployment with
  contractionary fiscal or monetary policy is lower
  inflation rate
• Contractionary fiscal or monetary policy pursued
  if enjoying lower inflation rate is worth
  tolerating higher unemployment rate
• Contractionary fiscal or monetary policy wisest
  when unemployment is low (lt5) and inflation is
  unusually high (gt6)
• Fiscal, monetary policy trade-off between
  inflation, unemployment

18
Unemployment Insurance (UI)

• Relieving unemployment
• All 50 states have unemployment insurance (UI)
  programs designed to provide relief for
  unemployed individuals
• UI makes regular payments to unemployed people
  equal to a percentage of what they earned when
  they were employed
• The more you earned when you were employed, the
  greater the monthly UI payments you receive when
  you are unemployed
• Unemployed people only qualify for UI if they
  had, prior to their unemployment, been employed
  for a reasonable length of time
• Limits on length of time unemployed people can
  receive UI, size of periodic UI payments
  unemployed people can receive, total UI payment
  people can receive over entire unemployment spell

19
Unemployment Insurance

• Michigan UI program
• Michigan UI recipients receive weekly UI benefit
  of approx. 50 of what they earned in a typical
  week when they were employed
• Ex. UI recipient who earned 300/week in wages
  when employed receives approx. 150/week in
  benefits when unemployed
• Ex. UI recipient who earned 600/week in wages
  when employed receives approx. 300/week in
  benefits when unemployed
• Maximum weekly UI benefit is 300
• Ex. UI recipient who earned 900/week in wages
  when employed receives 300/week in benefits when
  unemployed
• Only unemployed people who had worked for pay for
  approx. 50 of previous year can collect benefits

20
Unemployment Insurance

• Michigan UI program
• UI benefits over entire spell of unemployment
  cannot exceed approx. 40 of what UI recipient
  earned while employed over previous year
• Ex. UI recipient who earned 6,000 total in
  previous year cannot receive more than 2,400 in
  UI benefits total while unemployed
• UI recipients cannot receive UI benefits for more
  than 26 weeks
• Above description of Michigans UI program
  heavily stylized actual laws and rules regarding
  UI benefits in Michigan more complicated than
  above, hence the approximatelys
• UI benefits, like wages, subject to federal
  income tax since 1979

21
Unemployment Insurance

• Unemployment Insurance and Unemployment
• Does the generosity of UI benefits reduce the
  incentive of the unemployed to take jobs and
  become employed again?
• Idea behind above question UI benefits may make
  unemployment more tolerable, may make unemployed
  people more willing to tolerate long spells of
  unemployment, and may make unemployed people more
  willing to pass up available jobs and stay
  unemployed in hopes that an even better job will
  come around
• I.e. If UI benefits are reduced, do the
  unemployed take jobs sooner? Does the average
  spell of unemployment become shorter?
• Taxing of UI benefits starting in 1979 offers
  some evidence about the answer to this question

22
Unemployment Insurance

• Unemployment Insurance and Unemployment
• When UI benefits first made subject to federal
  income tax in 1979, the tax only applied to
  people with total yearly adjusted gross incomes
  (including wages and UI benefits) of 20,000 or
  more
• Consequently, in 1979, unemployed individuals
  with total incomes greater than 20,000
  experienced a reduction in UI benefits due to tax
  while those with total incomes of less than
  20,000 did not
• Natural experiment Did the unemployment spells
  of people whose UI benefits were reduced by the
  tax (those w/incomes gt 20K) become shorter
  relative to unemployment spells of people whose
  UI benefits werent taxed at all (those w/incomes
  lt 20K)?
• If yes, then UI benefits probably do lengthen
  unemployment spells

23
Unemployment Insurance

• Unemployment Insurance and Unemployment
• Gary Solon (U. of Michigan) analyzed U.S. DoL
  data about UI recipients in Georgia in 1978
  (before UI benefits were taxed) and in 1979
  (after UI benefits were taxed for some but not
  all)
• Found that unemployment spells of UI recipients
  whose UI benefits were taxed become shorter
  relative to unemployment spells of UI recipients
  whose benefits were not taxed

Taxation of UI benefits Taxation of UI benefits Avg. unemployment spell Avg. unemployment spell
1978 1979 1978 1979
UI recipients, income gt 20K Untaxed Taxed 10.8 weeks 8.4 weeks
UI recipients, income lt 20K Untaxed Untaxed 8.7 weeks 8.7 weeks
Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985)
24
Unemployment Insurance

• Unemployment Insurance and Unemployment
• Solons results imply that reducing the
  generosity of UI benefits has advantage of
  increasing the incentive of the unemployed to
  become employed sooner, probably because lower UI
  benefits makes unemployment less tolerable,
  employment more desirable
• But reducing the generosity of UI benefits also
  has the disadvantage of lowering the quality of
  life of the unemployed with less benefits,
  unemployed less able to pay for food, rent, etc.
• Similarly, increasing generosity of UI benefits
  has the advantage of improving the quality of
  life of the unemployed but also the disadvantage
  of reducing their incentive to become employed
• UI policy trade-off between work disincentive and
  quality of life